2.2 the role of markets in allocating resources Flashcards
1
Q
3 key allocation decisions
A
- what to produce?
- how to produce?
- for whom to produce?
2
Q
explain the key allocation decisions
A
- basic economic problem
- decisions must be made on how resources are allocated
- how products are produced? eg capital/labour
- how distribute? cannot satisfy needs of everyone
3
Q
what are the different economic systems
A
- planned economy
- mixed economy
- market economy
4
Q
explain market economic system
A
- consumers determine what is produced. signal through price mechanism
- gov intervention minimal
- land and capital privately owned
- private sector firms decide how to allocate resources
- highest income earners exercise max influence on what is produced
5
Q
what is the price mechanism
A
- aids resource allocation decision making process
- decision made at equilibrium point (supply=demand)
6
Q
define planned economic system
A
- gov makes crucial decisions
- land and capital state-owned
- resources allocated by directives
7
Q
define mixed economic system
A
economy in which both private and public sectors play an important role
8
Q
define price mechanism
A
- way the decision made by households and firms interact
- to decide allocation of resoruces
9
Q
how does price mechanism
A
